In each of these situations, a client sued their IT provider because of a problem with their technology. When that happens, E&O Insurance (also called Professional Liability Insurance) can help pay for:
- Lawyers to build your defense.
- Financial damages (if you’re found liable in court).
- A settlement to resolve the lawsuit out of court.
- Other court expenses.
Why Do Technology Businesses Buy E&O Insurance?
To be candid, a lot of small IT companies get E&O Insurance for the first time because a client requires them to have it. These requirements are usually laid out in contracts, so be sure to read yours carefully to make sure you’re in compliance.
Why do clients want you to have E&O Insurance? Think about it from your client’s perspective.
Say you were looking to hire a software developer. What would you be worried about? You’d be concerned that the developer might write bad code. Or maybe you’d be worried he wouldn’t deliver the project by agreed-upon deadlines. You’d want assurance that he’s as good as he says.
When your prospective clients evaluate you, they’re thinking the same things. But they’re taking it one step further. They want financial protection in case something does go wrong. That’s what Errors & Omissions Insurance provides.
If a mistake comes up in your work, you’re backed by an insurance company that can pay for damages, should the client sue. Clients get reassurance that if outages and mistakes cost them money, they’ll be able to sue and recoup their losses.